How much you pay for insurance protection usually depends on the amount you agree you'd fork out of your own pocket during a claim before the insurance company kicks in. This is your deductible. Its main attraction is that the higher the deductible, the lower the sum you pay for your insurance (the premium).
Simple? Well, here are 9 things to know:
- You pay a deductible only when you're making a claim.
- It may apply to each claim you make (as with car insurance) or a whole year (e.g. most medical policies).
- There may be different levels within the same policy (e.g. one for a home and another for its contents).
- Some insurers waive deductibles in certain circumstances (e.g. preventive healthcare).
- You must choose from available options (e.g. $500, $1,000).
- Your mortgage lender may stipulate the maximum deductible, so you don’t end up with one you can't pay.
- The Government stipulates the lowest health insurance deductible you can have to qualify for a tax-sheltered Health Savings Account (currently, at least $1,200).
- Some auto insurers may lower your deductible for the same premium if you haven't made claims over a period.
- In health insurance, a deductible is not the same as a co-payment. Usually after you've paid all your deductible, you may still have to pay a share of treatment costs – that's your co-payment.
When you're considering what level of deductible to opt for, you should take into account not only your immediate budget but also your ability to pay if you make a claim. For instance, with earthquake insurance, you might have options for a 15%, 20% or 25% deductible. Finding 25% of the rebuild value of your home, or making the corresponding loan repayments, might be a stretch. On the other hand, a driver who does little mileage and then only locally might opt for a high deductible because of the lower risk of a claim.
Deductibles aren’t always as simple as they seem. If you're confused or would like to know more, feel free to give us a call!
Mission Viejo: (949)582-5220